F&O Classroom: What is Finifty and why is this financial index of Nifty relevant in future and options trade?

F&O Classroom: What is Finifty and why is this financial index of Nifty relevant in future and options trade?

Welcome to our beginners guide to Finifty. If you have ever had a question in your mind that what is this financial index and how does it affect investment and trading, then here you can get the answer to this question. In this blog you will be able to know the basic things related to Fininty. Also, you will be able to clearly and concisely understand what it is, who the participants are and how you can trade and invest in this index. Let's find out…

What is Finifty?

Nifty Financial Services Index, Finifty tracks the performance of 20 leading financial services companies listed on the National Stock Exchange (NSE). . The index is composed of a variety of companies such as banks, insurance companies, non-banking finance companies (NBFCs) and housing finance companies. Companies are selected on the basis of their market capitalization. They are all from the Nifty 500 universe. Below is a list of the top companies in Fininty according to their weight in the index:

Company Name Weight (%)
HDFC Bank 32.53
ICICI Bank 20.57
Axis Bank 8.65
Kotak Mahindra Bank 8.22
SBI 6.97
Bajaj Finance 6.42
Bajaj Finserv 2.74
HDFC Life Insurance 2.14
SBI Life Insurance 1.98
Shriram Finance 1.68

How to trade in Fininfty

You cannot trade Fininfty directly in the same way. You can buy, just like you buy and sell shares of a company, but you can still invest and trade in these ways:

-Index Funds or ETFs:< /strong>Index funds and ETFs passively track the performance of Fininty. They offer investors diversified exposure to the components of an index without the need for active stock selection.
-Futures and Options Contracts: Traders or investors can trade in futures and options through their derivative products, futures and options. You can trade on Finifty from Rs. These contracts can be used for hedging and speculation purposes.

Overview of Fininty Futures and Options Contracts

NSE launched Fininty Futures and Options contracts in January 2021. These contracts derive their value from the benchmark index, Nifty Financial Services Index (FINIFTY). Settlement of options contracts takes place on the last Tuesday of the month. If Tuesday is a holiday, these contracts are settled on the last trading day immediately preceding the holiday. On the other hand, options contracts on Finifty Index have weekly and monthly expiries, while settlement of options contracts is done monthly. The current lot size of Finifty is 40.

Difference between Finifty and Bank Nifty

Both Finifty and Bank Nifty indices reflect the Indian financial sector. However, they differ in this way:

-What's in them: Finfinity offers services to a wide range of financial institutions including banks, insurance companies, NBFCs and housing finance companies. While Bank Nifty focuses exclusively on banks.
-Sectoral Weight:Banks have a more significant weighting in Nifty compared to Nifty, which is a narrower segment of the index. Reflects focus.
-Volatility: Finifty is less volatile than Bank Nifty due to wider diversification across financial sub-sectors.

In short Understanding Finifty will help you make better investments and diversify your trading in the financial sector. By understanding its components and how it differs from Bank Nifty, you will have the tools available to you to take a more strategic approach to the financial markets. We hope this simple and straightforward blog will help you understand the Fininty Index better, thereby enabling you to make more informed decisions.

(The author is Director, Upstox. Article The views expressed are personal and ABPLive.com does not endorse them. Please consult your financial advisor before investing in the stock market.)

Also read: In the storm of stock market, Bank Nifty index made a record, made this new history of height.

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